The Awkward, Unanswered Questions That Led to Coldplay’s Spotify Embargo

Coldplay have opted to not have their latest album Mylo Xyloto made available on streaming services…all of them, though of course Spotify is the core motive for this move.

It is yet another thrust of the wedge which is inserting itself between the streaming service and artists.

The download / streaming revenue disparity

Coldplay – with apparently begrudging support of their label EMI – have made a business decision that they would prefer to have a smaller number of people listening to Mylo Xyloto to ensure that a larger number of them are buying it.

The problem with Spotify is that it generates so little income per activity to artists compared to downloads, but this is not just a Spotify issue. In my earlier post showing PledgeMusic’s Benji Rogers’ digital income I showed how the average pay out per activity for streaming services (premium ones included) is over 300 times smaller than the average pay out per activity on iTunes.

Now, to be clear, we are not comparing apples with apples here (no pun intended). An activity on iTunes is a one-off paid download, whilst an activity on a streaming service is one stream and that play could occur multiple times for the same song. Yet it still leaves a rather large number of plays required before you start catching up with an iTunes pay out.

The three possible reasons why artists get so little from streaming services

So what is broken with the model? Streaming services already feel that they pay out too much to rights owners: services typically pay out in the region of 80% of their income to rights holders. So increasing their royalty payments would likely put many services out of business, unless of course they hiked their prices. But 9.99 a month is a hard enough sell as it is, let alone anything higher.

So where is the money going? Here are three possible scenarios:

The long tail is getting mined, and some. One possibility is that users of streaming services are spending their time listening to such a vast diversity of catalogue that any one artist only gets a minimal amount of plays and thus only small pay outs. However, with discovery features so weak on most services, the opposite is more likely to be true for the majority of users. Indeed 24/7’s CEO Frank Taubert once stated that a third of 24/7’s catalogue had never been downloaded, not even once. (24/7, remember, is the service that powers the remarkably successful TDC Play unlimited music service in Denmark).

Messy metadata is to blame. Streaming service metadata is a complex beast. With so many different sets of fields from different rights holders having to be blended into one massive dataset by each service, and each time in a slightly different way. There is always going to be room for error. This may be causing some proportion – possibly a significant share – of plays not getting reported. When Benji Rogers decided to test how well Spotify paid out, he left his albums on permanent stream for a month. Yet his digital income reports for that month not only fell well short of that number of plays, some of the catalogue was listed as not having even been played once. Given the complexity of rights reporting it is unrealistic not to expect at least some loss of data quality along the path of point-of-listening: in-service reporting; in-service data cleansing; data warehousing; distributing data to rights holders; rights holder data analysis; rights holder accounting; rights holder pay outs to artists.

Rights holders aren’t distributing all royalties appropriately. The conspiracy theory is that the big bad labels are collecting swathes of digital income from streaming services and then secretly squirreling away the majority of it for themselves. Though this is less likely than it may seem, there are a number of label practices which can cumulatively contribute to creating the effect. All artist/label contracts have stipulations about recouping costs – some of which are skewed against artists – and most have different stipulations about digital pay outs. So there are contractual and accounting reasons why some artists will not see all the income they expect. The notoriously Byzantine accounting practices of major labels are another potential related factor. The Achilles Heel of major label public relations, questionable accounting practices have resulted in many an artist horror story. The possibility of sums of unpaid royalties, stuck in escrow somewhere until forgotten about is every artist’s nightmare.

The likelihood is that all three scenarios play a role. I don’t believe that any party, Spotify or the labels included, have intentionally embarked on strategies to cheat artists out of money. But there is a distinct possibility that not all involved parties are exactly incentivized to plug the holes in their processes to thus bring the increased accuracy and effectiveness which could result in larger artist pay outs.

Digital commercial practices complicate matters further

The waters are further muddied by major labels becoming stake holders in some digital services, raising the prospect of portions of income from those services being joint venture income and therefore not subject to reimbursement to artists. Add to that the issue of the large advances services have to pay labels in anticipation of actual revenues, how much of that is paid to artists, and when, and especially if the service doesn’t ever generate the income guaranteed by its advance.

All these are valid issues that would benefit markedly from an open dialogue across the value chain. Spotify is left looking like the pantomime villain but is likely no more than a cog in a machine that nobody seems to really want to fix other than the artists.

But fixed it must be. Spotify and YouTube (NSDQ: GOOG) massively outpace most other digital music services in adoption and usage, yet they deliver a tiny fraction of the income. Artists cannot afford for these services to behave like radio (i.e. the tool to drive sales) when they are also becoming the end product for many music fans.

The case is clear for a transparent and robust dialogue between labels, artsists and services.

Coldplay have the benefit of being big enough to dictate terms. Most other artists don’t have that benefit. Greater transparency, effectiveness and accuracy in revenue reporting and distribution will help drive not only artist trust, but, via increased income, greater support too.

The alternative is that piracy gets another free shot at goal, which is what Coldplay have already likely delivered, driving many Spotify users back to Torrents to find Mylo Xyloto for themselves.